2023 (11) TMI 58 - AT - Central Excise

Reversal of CENVAT Credit as per provisions of Rule 3 (5) of Cenvat Credit Rules, 2004 - clearance of transformer oil as such along with final product - HELD THAT - From the flow chart produced by the learned counsel for the respondent, it is evident that the transfer oil purchased by them has been used for inspection and testing during the process of manufacture. The adjudicating authority in para-12 has considered the use of transformer oil in the inspection and testing stage of manufacture of transformer - While dispatching the transformer, required quantity of transformer oil is filled and the balance required quantity is cleared in barrels along with transformer. On perusal of the impugned order, it is found that the reason for holding that the credit need not be reversed is not merely because the value of inputs (transformer oil) has been included in the assessable value but also upon the fact that the transformer oil is used in the process of manufacture for inspection and testing of transformers and not cleared as such . The transformer oil purchased by the respondent was used inside the factory in the process of manufacture and only for convenience has been transported in barrels along with finished product. The transformer oil is not cleared as such - there are no grounds to interfere with the impugned order. The same is sustained. The appeal filed by the Department is dismissed.

Summary

Issues Involved:
1. Whether the respondent must reverse the credit availed on transformer oil cleared along with the final product.
2. Whether the transformer oil was cleared 'as such' or used in the manufacturing process.

Summary:

Issue 1: Reversal of Credit on Transformer Oil
The department argued that the respondent cleared transformer oil 'as such' and should reverse the credit as per Rule 3(5) of the Cenvat Credit Rules, 2004. The department issued a show cause notice for the period 2008-09 to 2012-13, alleging that the respondent needed to reverse the credit availed on transformer oil and proposed to demand the wrongly availed credit along with interest and penalties. The original authority, however, dropped the proceedings, concluding that the transformer oil was not cleared 'as such'. The department appealed this decision.

Issue 2: Clearance 'As Such' vs. Use in Manufacturing Process
The department maintained that the transformer oil was cleared 'as such' in barrels along with the transformer, citing a previous tribunal decision in the respondent's other unit. The department emphasized that the transformer oil did not undergo any change during the manufacturing process and was merely transported in barrels for logistical purposes.

The respondent countered that the transformer oil underwent necessary inspection and testing and was thus not cleared 'as such'. They provided a detailed flow chart explaining the Hot Oil Circulation (HOC) process, which is crucial for enhancing the Break Down Voltage (BDV) and removing residual moisture in transformers. The oil, after being used in the inspection and testing process, was drained and reused, indicating it was part of the manufacturing process.

The respondent also referred to the Board's Circular No.344/60/97-CX, which clarified that the manufacture of transformers is incomplete without transformer oil, making it eligible for input credit. The respondent argued that the credit availed on transformer oil should not be denied merely because some oil was transported for logistical purposes.

Tribunal's Decision:
The tribunal found that the transformer oil was indeed used in the manufacturing process for inspection and testing, and was not cleared 'as such'. The adjudicating authority's decision was upheld, noting that the value of the transformer oil was included in the assessable value for excise duty. The tribunal distinguished this case from the previous decision cited by the department, as it did not consider the inspection and testing use of the oil.

Conclusion:
The tribunal sustained the impugned order, dismissing the department's appeal and disposing of the respondent's cross-objection accordingly. The transformer oil was not cleared 'as such', and thus, the respondent was not required to reverse the credit availed.